Wednesday, October 31, 2012

Oz: the Anorexic Country.

Last year, shortly after winning the state elections, Barry O'Farrell, NSW Premier, announced a AUD4.5bn "black hole".

Although O'Farrell (Liberal Party) had promised not to touch the state public service, public finances were in such a catastrophic state that radical austerity was desperately needed. In conservative-speak: there was much fat to trim.

O'Farrell wasn't alone. According to a Crikey analysis (July), "38,000 public service job cuts have been announced at the federal and state levels over the past few years. A further 24,000 positions are on the line (the federal Coalition says it will cull 12,000 positions, while the Queensland government has hinted at a possible further 12,000-20,000 job losses)".

For NSW, the "2012-13 budget set a 1.2% per annum reduction in labour costs across the public service, which unions say equates to 10,000 jobs", 5,000 of which are "voluntary" redundancies. And that without counting cuts in health (AUD3 bn over four years), plus education cuts. Thank goodness the Liberal Party guys are such brilliant economic managers, always ready to take "courageous" decisions (ask shadow federal treasurer Joe Hockey).

----------

Do you believe in miracles? Well, they do happen. And the one delivering the miracle was no one other than the NSW Auditor-General, Peter Achterstraat:
"An expected deficit of $337 million [announced by state treasurer Mike Baird] in the middle of June became a surplus of $680 million by the end of June."
And how did this miracle happen?
"There were 37 errors of over $20 million each in accounts the Auditor-General's office identified and corrected.
" 'I would say that a $1 million error is unfortunate, a $10 million error is undesirable but a $100 million error is totally unacceptable,' he said.
"This is not acceptable for an entity the size of NSW that manages billions of dollars of assets and public funds.
"There is a lack of effective financial management capability in this state and it must improve."
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In the meantime, in what conservative think-tankers and spin-masters will argue is an entirely unrelated development, this is how unemployment (trend, seasonally adjusted, according to the ABS's latest release 6202.0 - Labour Force, Australia, Sep 2012):


Thanks for nothing, Barry, Mike, Tony, Joe, Julia, and Wayne. Keep trimming the fat.

Sunday, October 28, 2012

Greece and Spain: Crime and Punishment?

We all know the conservative narrative: the honest, long-suffering and wealthy taxpayer was being ruthlessly extorted huge amounts, which were immediately grabbed by the selfish and lazy moochers, via "entitlements" (enter the old-timers in age pension, the "welfare queens", the lazy voluntarily unemployed, the crippled; you know, "those people"); the cunning American borrowers lied to the naïve banks in their mortgage applications.

Bottom line: "those people" were living beyond their means. Now, the morality play concludes, they must pay. It's time to unshackle the job-creators, give them a break.

----------

In 2004, when the Duke and Duchess of Parma wanted to buy a home, they, like everybody else, applied for a mortgage loan (See here, in Spanish). They asked La Caixa for a EUR 5mn loan, in order to pay for an apartment valued 5.8mn, at the time. Over a 30 year period, the monthly payment (variable interest) was over EUR 17,000.

At the time, according to the information provided, the couple's net worth was EUR 3.6mn (1.3mn in check and savings accounts), and His Excellency, Iñaki Urdangarín, was already guarantor to 3 other mortgages.

Among the paperwork, His Excellency - His Majesty don Juan Carlos I of Spain's son-in-law - included his tax declaration (See here, PDF, in Spanish). That year, His Excellency declared a before-tax yearly income of EUR 36,000, or 3,000 a month.

----------

And, you know what? In October 2004, La Caixa approved the loan to the couple.

According to Reuters (October 18):
"Loans that fell into arrears in August increased by 5.3 billion euros ($7 billion) from July, reaching 178 billion euros, Bank of Spain data showed on Thursday.
"Non-performing loans on the books of the country's crippled banks have risen steadily since a decade-long property boom ended four years ago.
"Spain's lenders are preparing to receive the first funds from a 100-billion-euro ($131.21 billion) credit line agreed with the European Union in June which is seen paving the way to a full sovereign bailout." (See here)
And as experience shows and unlike PM Mariano Rajoy once tried to convince the Spanish people, those funds do come with strings attached.

----------

And speaking of unshackling the Atlases. Last week Rajoy's government ordered the release from jail of 4 of his PP colleagues who had been sentenced in 2009 to prison terms ranging from 3 to 10 years, for the commission of 31 instances of corruption. (See here, in Spanish).

Asked in Parliament to justify the measure, the Rajoy Government gave no reason. The sentence was not questioned.

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In Greece, the journalist Kostas Vaxevanis was arrested today after publishing a list with the names of 2,059 tax evaders, allegedly including the president of the Greek Parliament, several high officers of the Finance Ministry and a number of high executives and business people. (See here, in Spanish; here, in English)

The list, sent to the Greek government in 2010, was compiled by Christine Lagarde, then French Finance minister, currently head of the IMF. According to George Papaconstantinou (PASOK), Greek Finance minister in 2010, the list was lost.

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This is what underlies the conservative/semi-fascist bullshit.

Saturday, October 27, 2012

Precious Bodily Fluids and Free Markets.

"Mandrake, do you recall what Clemenceau once said about war?
"No. I don't think I do, sir. No.
"He said war was too important to be left to the generals. When he said that, 50 years ago, he might have been right. But today, war is too important to be left to politicians. They have neither the time, the training, nor the inclination for strategic thought."
  (General Jack D. Ripper)

The quote above is from Stanley Kubrick's 1964 film "Dr. Strangelove" and Ripper is a fictional character.

Soviet military sites in Cuba, 1962. [A]
If you haven't seen it yet, this is a good film to watch this month, as the world commemorates the 50th anniversary of the very real Cuban missile crisis, and we approach the 49th anniversary of John F. Kennedy's death.

Kubrick's black comedy (starring Peter Sellers and George C. Scott) takes a shot at the anti-Communist hysteria then prevalent in the US: for instance, it mentions a "Bland Corporation" (a reference to the real RAND Corporation). To be fair, probably a good case could be made about similar attitudes in the USSR.

John von Neumann. [B]
It has been said that one of Sellers' characters (Dr. Strangelove) is a composite of several real-life scientists, many of Eastern/Central European origin. Fairly or not, one name suggested as possible inspiration is John von Neumann. Other possibilities are Wernher von Braun and Edward Teller.

Neumann, by all accounts, was one of the most gifted minds of the 20th century, having made important contributions to many fields, including economics.

Neumann was born to a Jewish banking family from Budapest, then in the Austro-Hungarian Empire. For reasons I won't mention (as I won't spoil the movie for those who never saw it) but that will be obvious to those who have watched the movie, this is relevant against the charges that Neumann has anything to do with Strangelove.

At the other hand, Neumann, like Strangelove and many among those European émigrés (Oskar Morgenstern and Ludwig von Mises come to mind), was furiously anti-Communist:
"If you say why not bomb [the Soviets] tomorrow, I say, why not today. If you say today at five o'clock, I say why not one o'clock?" (Neumann, supposedly in 1950. See here)
It makes me wonder how Neumann and Albert Einstein (who was sympathetic to socialism) would have gotten along at the Institute for Advanced Study, in Princeton University, where they were neighbours.

----------

Neumann's theoretical contributions to economics, Jack D. Ripper's quote above, and what we are seeing in Europe, make me think that perhaps the economy, like war, is too important to be left to its practitioners, its theoreticians or even to politicians.

Of course, I don't expect businesspeople, economics professors or politicians to agree with me.

----------

Let me close this post with the rest of Ripper's quote, where he explains why he overstepped his authority and ordered a nuclear strike against the USSR:
"I can no longer sit back and allow Communist infiltration, Communist indoctrination, Communist subversion and the international Communist conspiracy to sap and impurify all of our precious bodily fluids."
The BADGER explosion on April 18, 1953, Nevada. [C]


Image Credits:
[A] Soviet Military Build up in Cuba, late October 1962. Author: US Department of Defense. Wikipedia.
[B] John von Neumann at Los Alamos. Author: US Department of Energy. Wikipedia.
[C] The BADGER explosion on April 18, 1953, Nevada. Author: Federal Government of the United States. Wikipedia.

Thursday, October 25, 2012

Greece: a Coming Civil War?

Or, Who's Worse?

These two reports from Greece, by the BBC's Paul Mason, speak by themselves. It is all about ignorance, misery and unapologetic beastliness. And it is about what the European political, financial and bureaucratic elites have unleashed upon their countries and humanity, more generally:


I imagine, or at least I hope, most of my readers, regardless of ideology, class, race, religion, age, gender, income, wealth and nationality, would be genuinely appalled by that video.

However, I'll submit that seemingly ordinary, respectable people, people we may know personally, or with whom we regularly interact over the net, are capable of behaviour worse, in a sense, because of their deep dishonesty.

Probably these people, for some reason, have never themselves done the things we saw in the video. Whatever has stopped them, so far, probably lies on a continuous scale ranging from the simple lack of opportunity, to the fear of losing their peers' respect.

In any case, you won't see them slapping old women's faces in front of TV cameras, harassing foreigners in the street or calling openly for an ethnically motivated civil war. Imagine! They are above that.

Unlike those unapologetically thuggish characters in the video, these people, our "friends", try hard to appear reasonable: their middle-class peers value moderation, reasonableness. And because they are "moderates", "centrists", "realists", they are quick to condemn extremes (including their shamelessly animalistic brethren).

But you can guess their true feelings by their eagerness to defend the obviously indefensible, or to at least find attenuating circumstances for it.

Take, for instance, these two comments, copied verbatim from a somewhat left-leaning site, on a The Guardian story (which I strongly urge you to read before the comments):
First Poster said...
"Re Nazis, that Guardian article said that 'if they come they will be met by leftists who have said they will beat them up with clubs'. Since Hitler used street violence, is it the political left or the political right who are Nazis?
"The same thing has happened in Britain: we've had members of left wing groups arrested for street violence.
"Hitler used to kill the authors and film producers he didn't like. Muslims do likewise, so Muslims are Nazis?
"The Nazi jibe is a strong indicator that the person using the jibe has run out of arguments". (September 29, 2012 8:22 PM)
I hope to be making a storm in a cup of tea, so I won't name either poster or facilitate their identification. If they read this, they know who they are. The other readers, I am afraid, will have to take my word for it: those are real comments.

The comment above, for instance, comes from a "progressive" blogger and commentator fairly well-known and popular in the lefty blogs I visit daily.

The other one, which if anything is worse, is from a self-described economics student, who once was critical of mainstream economics, but who saw the light in the road to Damascus and now frequently criticizes radical and heterodox economists (and anything left, really):
Second Poster said...
"What 'First Poster' has noticed is an odd asymmetry in the way that left and right wing extremists are treated.
"Right wing extremists provoke much wailing and gnashing of teeth over the coming Nazi-pocolypse. They must be always and everywhere defeated and crushed under foot.
"Left wing extremists are completely normal. They should be placated with concessions and other shiny things to mitigate their wholly legitimate grievances". (September 30, 2012 1:39 AM)
I won't pretend that I am reasonable, impartial, or moderate: I wouldn't fool anyone if I tried. Neither am I middle-class or respectable: I am working-class, poor and no one gives a shit about me.

I won't go into a discussion over the First Poster's childish attempt (Godwin Law) to spin what are neo-Nazis into something less poisonous: if it looks like a duck, swims like a duck, and quacks like a duck, then, it probably is a duck.

Neither will I accept the Second Poster's "denunciations" of double standards: it's not that left wing "extremists" wrongly perceive the situation in an asymmetric manner, the situation is asymmetric. His side (that in his view should not be crushed under foot) is actually using violence against the defenceless; the left wing "extremists" are threatening to use violence in defence of the defenceless and are paying a price for that, at the hands of the Greek police.

More briefly and to the point: you both can take your "arguments" and shove them up your reasonable, moderate, centrist, realist, impartial asses.

And, just so you both know, the contempt is mutual.

----------

I'd advice a good dose of skepticism, when dealing with "reasonable", "moderate", "centrist" people: extremists speak their mind more clearly. It's easier to judge what they say.

In this, these "moderates" are worse than the Golden Dawn.

Update:
20-10-2012. Mason has another post on the similarity between Greece and the Weimar Republic. He traces the history of the last 3 Weimar federal elections and the post is interesting, even if Mason is confused in some points.

It's not accurate to say, like Mason does, that "right wing general Kurt Von Schleicher was appointed chancellor, and tried to form a government with everybody from the left wing of the Nazis to the socialist trade unions".

For starters, he did not try to form a government with the Communists, as they were totally unacceptable to him and the German plutocrats he represented (neither, I believe, would the Communists have accepted).

Second, for Schleicher (plus Hindenburg and their gang) the Nazis were an slightly less bad an alternative than the Communists, because they thought they could outmaneuver them. After all, they were the aristocracy and elite of Germany, by definition the smartest, most capable, people in Germany, in their own appreciation.

Schleicher's goal was to become a military dictator himself, very much like Engelbert Dollfuss, in Austria. As it happens, Schleicher badly miscalculated and paid the ultimate price for that, just like Dollfuss did. And I, for one, find little reason to lament their personal fates.

Sunday, October 21, 2012

Spanish Regional Elections.

Yesterday saw the regional elections in Galicia and the Basque Country. Both good and potentially really bad news...

Galicia:
Galicia (red) [A]
In Galicia, the local centre-right "People's" Party maintained government (gaining 3 additional seats in the local parliament), while the PSdeG, the local PSOE franchise, suffered a huge loss (less 7 seats). These results should please Spanish PM Mariano Rajoy, himself a galego (i.e. Galician). (See here, here and here, in Spanish; here, in English)

While not surprised, I am puzzled. At one hand, the results were expected, according to the pre-elections polls giving the victory to PP. And, as expected, the galegos would understandably further punish PSdeG. But, why on earth would anyone vote for PP, in the first place?

The AGE (local left wing) gained 9 seats and parliamentary representation, which seems more understandable; the local nationalist party (BNG) lost 5 seats.

I guess Rajoy won't have much to complain here; for his PSOE counterpart, Alfredo Pérez Rubalcaba, however, this should be ominous news.

Euzkadi:
Euzkadi (green) [B]
Here both mainstream parties (PP and PS-EE/PSOE) suffered big losses in the local parliament: -3 and -9 seats, respectively.

And those were not the worst results: the non-nationalist left Ezker Anitza-IU vanished, with no seats in parliament.

Curiously, I think any Schadenfreude from right-wing readers would by premature: Mariano Rajoy and his clique may have very little to celebrate here.

The centre-right/nationalist PNV gained the largest parliamentarian representation, while losing 3 seats; EH-Bildu (Basque nationalist/left wing) however, gained 16 seats, to become the second largest parliamentarian party.

Unlike Galicia, for Euzkadi independence is an important issue and one that may yet prove thorny for the likely next Basque premier, Iñigo Urkullu (PNV) and for Mariano Rajoy.

Urkullu, who didn't achieve the numbers to govern without alliances (27 seats of 75), will need parliamentarian support. That's the source of his problems.

He could attempt a deal with EH-Bildu (21 seats) and get the numbers that way, but this could add momentum to the popular demands for independence, which are not welcome in Madrid. Alternatively, and more naturally from an ideological perspective, he could try to court both PSE-EE (16 seats) and PP (10); however, would his constituents like such a move?

Catalonia (red) [C]

While Urkullu's first words could be interpreted as an attempt to differentiate his stance from that of Catalonian Artur Mas, the nationalist victory in Euzkadi could help CiU in the upcoming Catalonian regional elections (November, 15). And Mas has promised a referendum on the issue of independence.

If I were Rajoy, I'd worry.

Image Credits:
[A] Map of Spain with Galicia highlighted (July 6, 2009). Author: Mutxamel. Wikipedia.
[B] Autonomous Community of Euzkadi (October 4, 2006). Wikipedia.
[C] Map of Spain with Catalonia highlighted (July 9, 2009). Author: Mutxamel. Wikipedia.
 

Saturday, October 20, 2012

Who Creates Wealth? (IV)

In a previous post in this series we've seen that shareholders in general do not contribute to the firms they own. Yet, they gain from it.

One could be tempted to justify this (as many in the Austrian economics camp do) on moral grounds. In the latest post, we've seen that this objection seems to be irrelevant.

----------

Two new objections are possible now. What if Fred was an original capital subscriber? What if he contributed capital to the firm? Without his thrift there would be no Apple Inc! Surely he deserves a reward for that?

Or perhaps the reader would object the examples used on a different ground. Small shareholders don't control the firm. Big shareholders do; their momentous decisions on crucial matters, that's what creates wealth. (h/t Tao Jonesing, and comments here)

We'll consider the second objection (the decisions) in this post, leaving the capital contribution objection for a subsequent post.

----------

Let's consider this objection carefully. The point is not that shareholders in general deserve their gains (small shareholders, for one, don't deserve them), but that some shareholders (the big ones) do.

In other words, there is a difference between small and large shareholders, justifying big shareholders' gains. Namely, large shareholders contribute something (i.e. their decisions); small ones don't contribute anything.

This means that, if there is a justification for these gains big shareholders get, it must be these momentous decisions. Thus, anyone making those decisions would deserve those gains, perhaps proportionally to the decision's importance.

This introduces several questions, which we'll leave aside, for brevity's sake. [1]

Here we'll settle these questions in an arbitrary manner: big decisions are those made solely by the board of directors and senior management. We'll reconsider the whole issue later.

In their capacity as directors or managers, these individuals are in reality the owners' agents, legally obliged to act on the owners' behalf. And they are paid for the work they do in that capacity: salaries, directors' fees. Observe carefully: they work and get paid for it (by the way, extremely well paid), just like any other worker.

In other words, managers and directors are legitimately entitled to a compensation for the services they render to the firm. One might question, however, the magnitude of the compensation.

----------

As it happens, managers and directors are sometimes owners. But if these manager/owners get salaries and directors' fees for the work they do as managers and directors, what, then, justifies their keeping profits in addition to their salaries/fees?

For the moment, I'll advance the two possible answers that seem to be left:
  1. What explains their receiving profits/dividends is their legal ownership of the firm. Exactly like individual shareholders and speculators.
  2. The capital contribution (which, as already said, we'll discuss in a coming post).
Observe that this means that the crucial objection is not whether some individuals (big shareholders/managers or just top managers) make momentous decisions, versus small shareholders, who make no decisions. It's these large shareholders/managers' job to make these decisions and they are compensated for that: in the exercise of their functions they are extremely well-paid workers; but workers, all the same.

The crucial objection to my conclusion that profits and dividends are due only to ownership is the capital contribution, which small shareholders don't make and that large shareholders make (assuming, and only to the extent, they actually contributed something to the firm!). This explains my choice of leaving this last objection for the last post in this series.

----------

Before closing, we should go back to the arbitrary answer given before: crucial decisions are those made solely by top managers.

If this were so, then rewards should be proportional to the decision's importance to the firm. Good decisions, leading to good outcomes, must be highly rewarded. Bad decisions, leading to poor outcomes, must not.

I don't think we need to go to great lengths to see that this is not what happens:


Notes:
[1] For instance, everybody in a firm, from the chairman of the board, down to the receptionist and the janitor, makes decisions affecting the firm. What makes their decisions different? How do we measure a decision's importance? What is a big decision, anyway?

Friday, October 19, 2012

Is Franco Still Dead?

After images of the savage rampage by Spanish police against protestors and members of the general public were seen world-wide (prompting Argentine president Cristina Fernández to denounce the repression in the General Assembly of the United Nations), the Spanish government headed by Mariano Rajoy has taken steps to avoid the repetition of the incidents a few weeks ago.

To that effect, the director general of the National Police, Ignacio Cosidó, announced this week his intention to reform the law, to forbid "the capture, reproduction or edition of images, sound or data" about the police, in exercise of their functions.

With his party ("People's" Party) in absolute control of Parliament since last year's election, Cosidó's plan seems likely to be adopted.

In Cosidó's mind, apparently, the problem does not lie in the police's disproportionately violent action. After all, the Madrid police authorities had time enough to plan a special operation, mobilizing up to 1,300 anti-riot agents, including reinforcements brought from 30 out of the 52 police anti-riot units all over Spain.

So, the problem was not the extreme brutality displayed by the police, leaving 64 injured, but the images of it shown abroad, which Cosidó considers could endanger the officers.

I can't see how images like this endanger police officers, and therefore, I show them:


Cosidó's preoccupation with the well-being of Spanish police officers should come as a welcome surprise to his subordinates, as since he assumed its direction, the National Police has been rocked by never before seen confrontations between the old top brass, sacked in its entirety by Cosidó upon assuming the position, and the new appointees. Allegations flying that the Police are now being used almost extra-judicially in investigations against political foes, who once investigated personalities linked to the "People's" Party.

----------

And while in Spain the police beat up protestors and passersby alike, and attempts to curtail civil rights in the best Fascist/Falangist tradition as taught by Francisco Franco, in Greece the official police force seems to have recruited an unofficial parallel police force, provided free of charge by the neo-Nazi Golden Dawn; apart from being investigated for using a female detainee as a human shield and torturing left wing activists.

----------

It seems Merkel and her masters are achieving their goals: dumping all the bullshit of capitalist democracy and its touchy-feely talk of human rights. There is one and only one human right these people recognize: property right. If you don't believe me, ask the people who know: the libertarians.

Either you get used to it, or you do something about it.

And some folks, in Germany, are trying:


The video title reads: "Merkel booed while singing the national anthem in Stuttgart, October 12, 2012".

Perhaps you should, too. Before you are at the receiving end of the clubs.

Sunday, October 14, 2012

Germany's Past... Europe's Future?

Hindenburg (left), Ludendorff (right), 1917. [A}
August/September 1918: The Imperial General Staff, headed by field marshal Paul von Hindenburg and general Erich Ludendorff, reached the conclusion that Germany had lost the war.

Although German armies were fighting on foreign lands (German borders still largely unviolated), Germany had suffered 2.5 million fatalities (about a fifth, civilians lost to starvation), plus 4.25 million wounded. Bulgaria (a German ally) collapsed, and the Austro-Hungarian Empire was close to. The Allied naval blockade reduced the Imperial Navy to impotence, denying German access to foodstuffs and raw materials required for its war effort. With civilian protests demanding food increasing in number and intensity, the internal political situation in Germany was deteriorating rapidly. To make things worse, the full weight of the American intervention only began to be felt.

Diplomatic negotiations started, US president Woodrow Wilson demanding, among other things, the Kaiser's abdication, and the democratization of Germany. Hindenburg and Ludendorff, de facto rulers of Germany, would need to assume responsibility for the defeat; the consequent loss of face to the General Staff could lead to its losing influence in a democratic Germany.

Forced by the circumstances, Hindenburg and most of the General Staff accepted, in spite of the drawbacks; Ludendorff, however, perhaps affected by depression, changed his mind and resigned in protest, under disputed circumstances.

Communists and Social Democrats

Since the latter half of the 19th century, the Social Democratic Party of Germany (SPD) included all shades of Marxists. The SPD right-wing, which would eventually abandon Marxism, was headed during war times by figures like Friedrich Ebert, Gustav Noske and Philipp Scheidemann. The SPD left-wing, headed by Karl Liebknecht and Rosa Luxemburg, among others, gradually left or were expelled from the party, initially over the issue of supporting the war effort, which they opposed:
"The present war was not willed by any of the nations participating in it and it is not waged in the interest of the Germans or any other people. It is an imperialist war, a war for capitalist control of the world market, for the political domination of huge territories and to give scope to industrial and banking capital."

German Revolution 1918-19

Dolchstoßlegende.
Austrian postcard (1919) [B]
October 1918: Prince Max von Baden, with Hindenburg's support, announced the constitution of a new cabinet, including the social democrat Ebert, in an attempt to neutralize the social democrats.

November 1918: The revolt of the High Seas Fleet, based in Wilhelmshaven and Kiel, spread among civilians all over Germany. The former SPD left (grouped in the Spartacus League and the USPD) supported the revolt, with Anarchist elements. Kurt Eisner (USPD) proclaimed the republic in Bavaria, in a bloodless revolution, where private property would by guaranteed. Facing violent armed repression in Berlin, the Spartacists, led by Liebknecht, decided to respond with violence (against Luxemburg's opposition). Kaiser Wilhelm II fled to the Netherlands and prince von Baden resigned, Scheidemann declared the Republic (November 9), and Ebert was left in charge as president and chancellor. Ebert and general Wilhelm Groener (de facto Army commander) reached an agreement: the General Staff would support the Ebert cabinet, in exchange for keeping control over the German Army; the Army was given free hand to deal with the revolt. Ludendorff, in disguise, left for Sweden. There he went on to propagate the Dolchstoßlegende, the stab-in-the-back myth: the victorious German armies had been betrayed by socialists, communists and Jews. Absent Ludendorff and Hindenburg finding it below his station to sign the armistice, the signature fell to center-right politician Matthias Erzberger (November 18).

----------

The Ebert-Groener agreement had serious consequences not only for the development of Germany into a supposedly Western-style liberal democracy, but would set a precedent that today's European politicians seem too eager to follow: in practice a large role in the violent suppression of the left-wing revolt fell on the illegal right-wing ultra-nationalist and conservative paramilitary Freikorps, whose rabid anti-Marxism recommended them to the ruling classes, including the newly promoted SPD leadership. Unfortunately for Jews and other ethnic minorities, these groups were often also anti-Semitic, racist and xenophobic.


Aftermath

The Army/Freikorps ruthlessly suppressed the left-wing revolt on Ebert's behalf. Luxemburg and Leibknecht were murdered (January 15, 1919) by a Freikorp unit under the command of captain Waldemar Pabst. Isaac Deutscher, the left wing British historian, reportedly wrote:
"In her assassination Hohenzollern Germany celebrated its last triumph and Nazi Germany its first".
Pabst (who publicly boasted, "I had them executed") framed his subordinates for the crime. In 1920 he played a leading role in a failed putsch against his former ally, Ebert. Although he never officially joined the NSDAP, his right-wing credentials were useful to gain a directorship in German and Swiss weapon manufacturers. After WW2, Pabst may have been involved with neo-Nazi activities. He died peacefully in Germany, at the age of 89, in 1970.

Ebert, who remained chancellor until his death at the age of 54, in 1925, survived the above mentioned 1920 coup d'etat attempt by his former Freikorp allies, but never was fully accepted by the rest of the German ruling classes. The foundation named after him is the main educational/research outlet of the current SPD.

Scheidemann, who proclaimed the republic, and became chancellor after Ebert was named president, self-exiled to Denmark after the Nazi takeover. He died in 1939.

Noske, who personally directed the repression in Berlin, lived an apparently uneventful live under the Third Reich until 1944, when he was arrested as suspect for the 1944 plot to murder Hitler. The allied advance saved him from execution. He died in 1946.

Erzberger was murdered (August 16, 1921) by elements linked to the Freikorps. His crime was to sign the armistice.

Eisner was murdered on February 20, 1919. He had his resignation to the position of Bavarian Premier with him. His murderer, Anton von Arco-Valley was an Austrian national, radical conservative and pan-Germanic nationalist, who served under the German flag, apparently not linked to the Freikorps.

Arco-Valley, whose mother was an Austrian aristocrat of Jewish faith, was, nevertheless, intensely anti-Semitic. Allegedly, he hoped the murder of Eisner (who was both Jewish and socialist) would prove his bona fides to the Thule Society (an aristocratic occultist group in Munich linked to the Deustche Arbeiterpartei, DAP). Reportedly Arco-Valley said this about Eisner:
"Eisner is a Bolshevist, a Jew; he isn't German, he doesn't feel German, he subverts all patriotic thoughts and feelings. He is a traitor to this land."
Another Austrian national living in Bavaria, corporal Adolf Hitler, was recruited as Army undercover intelligence operative in July 1919. In that capacity, he joined the DAP.

A fanatical pan-Germanic nationalist and anti-Marxist, like Arco-Valley, Hitler, unlike his aristocratic counterpart, understood how appealing socialist ideas were to the German working class. Therefore, he appropriated the socialist rhetoric, sans class conflict, plus a furious anti-Semitism and prefixed Nationalsozialistische ("nationalsocialist") to the Deutsche Arbeiterpartei title, resulting in NSDAP. On November 8, 1923, with the support of Ludendorff and his own militia (the SA), Hitler attempted a putsch, that failed. On April 1, 1924, Hitler was sentenced to 5 years in the Landsberg Prison. He occupied the same cell Arco-Valley had occupied.

March 1919 Revolutionaries
after summary execution. [C]

Thousands of German workers, activists, trade unionists and common people caught by the indiscriminate repression, shared Luxemburg, Leibknecht, Eisner and Erzberger's fate. The permanent and radical rift between communists and Anarchists, at one hand, and social democrats, at the other, facilitated Hitler's rise to power. Communists, social democrats and Jews organized their own militias (Rotfront, Eisernes Front, and Reichsbund Juedischer Frontsoldaten, respectively), against each other and against the nationalist Freikorps and the SA.

On January 30, 1933, president Hindenburg appointed Hitler chancellor.

President Hindenburg and chancellor Hitler
(March 21, 1933) [D]

Image Credits:
[A] Hindenburg and Ludendorff (1917). Bundesarchiv, Bild 146-1987-127-09A / CC-BY-SA. Wikipedia.
[B] Illustration of the Dolchstoßlegende. Austrian postcard (1919). Wikipedia.
[D] March 1919 Revolutionaries after summary execution. Bundesarchiv, Bild 102-00539 / Groß, Alfred / CC-BY-SA. Wikipedia.
[D] President Hindenburg and chancellor Hitler. (March 21, 1933). Bundesarchiv, Bild 183-S38324 / CC-BY-SA. Wikipedia.

Wednesday, October 10, 2012

Good News... Bad News... (IV)

The Financial Sector Union and the Australian Services Union, in simultaneous media releases, dropped this news:
  • "Forecasts from the 2008 study [Off-shore and off work. September 2012 update] are on track to be realised in the absence of policy intervention.
  • "More than 80,000 service [and financial] sector jobs have moved offshore since previous report.
  • "With more than 20,000 jobs moving offshore each year we would expect between 700,000 and 1 million jobs to move off-shore in the next three decades.
  • "Action is needed to address service sector [and financial] off-shoring crisis and boost competitive position of Australian service [and financial] industries".

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In a case of very good timing, RBA's deputy governor, Philip Lowe's speech to the Financial Services Institute of Australasia (FINSIA) on the same subject of off-shoring, broke the good news.

Lowe treats a number of interesting subjects, all of which would deserve consideration. For instance, he includes the following unemployment rate chart, which shows that, by recent standards, unemployment is not too bad.

Click for a larger image.

No mention, however, is made to the fact that by late-1960s' standards, our current relatively low unemployment rate is high. No explanation is offered for this, either. But one can assume it has something to do with the abstract, slightly vague and undoubtedly mysterious "structural changes"

The bit of Lowe's speech that apparently caught the eye of journalists was "that since 2007, about 300,000 net new jobs had been created in healthcare, 200,000 in professional and scientific services and about 130,000 in each of the mining and education sectors".

Lowe included the following chart, illustrating this behaviour:

Click for a larger image.

Note that, for instance, retail trade basically employs now the same quantity of people it did in 2007, regardless of the increment in the population: in other words, there are less people employed in this industry per capita. If you prefer, nowadays, it is harder to get one of these jobs.

The same conclusion applies, with more reason, to manufacturing.

Well, I suppose if one loses one's job in manufacturing, then one could try moving to a growth area, like healthcare, professional and scientific services or mining and education and training.

Upon a closer examination, however, the reader would agree that perhaps a job in professional and scientific services or education and training is not too realistic an option for an unemployed blue-collar worker: you need time and savings to get the qualifications; but even if you did get them, why would any employer prefer a middle-aged graduate to a much younger one?

You have two options left: mining and healthcare. Mining sounds like a long shot: even the "permabulls" seem to finally accept that mining has gone through the development stage, where large numbers of workers were required.

What about healthcare? That certainly seems an option. Mind you, not a top tier job (like doctor, or something) for the same reason that a professional/scientific services or education/training jobs are not realistic: qualification and age.

But a more modest healthcare job seems possible. And how much to they get paid? Lowe also offers a good chart:

Click for a larger image.

Healthcare, in average, has not gained anything over the average pay since 1998.

In other words, if you were a blue-collar worker, you lost your manufacturing job, need now to struggle to get new qualifications (say, in healthcare), so that you can compete against younger candidates and, at best, if you succeed, you will have gained nothing.

Not so awesome, I'd say. And that without taking into account the predictions made by the Services and Financial Sector unions.

This may be just me, but if I were one of those former blue-collar workers, right now, I wouldn't be too happy.

Now, the question is, can we do something about it? To be honest, I don't think so, under capitalism, that is.

Sunday, October 7, 2012

Who Creates Wealth? (III)

In the previous post in this series we saw that shareholders or capitalists do not need to contribute anything to a firm's productive process in order to gain from it.

Their gains, we also saw, come from their ownership of the shares.

In other words, their part ownership of the firm, represented by the stock, allows them to accumulate financial claims on wealth they did not generate.

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Some would object that successful investors deserve those gains, even if they don't contribute to the productive process. It's a matter of morality: they are like the virtuous ant in the ant and the grasshopper tale.

Let's add another, related, objection: it takes an analytical mind to pick a winner in the stock market; there are risks involved, too; successful investors must be real smart.

This last objection is arbitrary and as likely to be true as it is to be false. Maybe these successful investors were just lucky, buying into AAPL (as exemplified in the previous post) because the name was pretty. Sometimes people, even exceedingly moral ones, like investors, get insider information. Then they put their holding inside a safe and forgot about it; or maybe just fell into a coma.

Research has found no evidence that investors systematically outperform the market. At most something like:
"(...) Results suggest that the pros selection statistically outperforms the random selection only in the one-week period. Over a six-month holding period, the random stocks perform better than the pros recommendations". [1]
And that possibly because of a kind of "self-fulfilling prophecy": a respected advisor recommends a stock, investors buy into it, making the price go up.

Regardless, for the sake of the argument, let's assume our friend Fred is a true "market visionary", who heroically saved money, penny by penny, and invested it in AAPL at great personal risk. Doesn't he deserve his gains, even if he did not generate the wealth he claims?

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Foxconn assembly line workers are paid to assemble machines; not for their personal virtues: no bonuses for playing the clarinet, being nice or smarter than Odysseus. Apple Inc. designers are paid for their designs; computer programmers, for the software they write. No morality considerations are sufficient to change this [2]

They all contribute to their employer's bottom line and that's why they get paid. No morality considerations are necessary: if they are not paid, workers stop producing, the firm stops selling and there is no money to pay suppliers, taxes and dividends. Workers generate their own pay, plus a lot more.

"Ah!" - the free-market believer says - "Governments, too, extract money from the firm, as taxes. But they don't contribute to the productive process. Why don't lefties denounce this?" It's questionable that governments aren't functional for capitalists; but to argue why would take us far from the subject. [3] So, it's easier to assume it: "You are right. Governments are parasites and do not contribute in any way to the productive process".

As we saw last time, shareholders (Fred among them) contributed nothing at all to Apple's performance, and legally extracted money from it. If I were a free-market faithful I'd find it difficult to differentiate a shareholder from the Government in this sense.

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Let's look at this from another perspective. If the reader is a shareholder (say, an Apple Inc. shareholder), try the same thought experiment: write Tim Cook a forceful letter demanding higher dividends for you, because you are really nice, a good clarinet player or smarter than Odysseus. At best Apple's CEO's reaction would be something like: "Good for you! So what?"

That answer would sum up the notion that for Apple Inc. Fred's morality-based claims are as irrelevant as his age, religion, height, wisdom, beauty, or musical tastes. After all, firms, too, own shares and firms have no virtues.

Careful readers may have noticed the adjectives "sufficient" and "necessary" used above: morality and pay "smarts" are neither necessary nor sufficient to justify workers' pay. This means that for workers, in a logical sense, pay and morality are not logically equivalent. Why should dividends/capital gains and morality be equivalent for shareholders?

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I'll try next the last common objection I've heard: Small shareholders (like Fred) don't control the firm. Big shareholders do; their momentous decisions on crucial matters, that's what creates wealth!

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Readers are invited at all times to submit their questions, to offer their own original objections and comments. Please, however, check the Comments page before posting.

Notes:
[1] Liang, Youguo; Sanjay Ramchander and Jandhyala L. Sharma (1995). The Performance of Stocks: Professional versus Dartboard Picks. Journal of Financial and Strategic Decisions. Volume 8 Number 1 Spring 1995

[2] Skeptical readers may try the following thought experiment: demand a pay raise forcefully from your boss because you are really nice or a good clarinet player. DISCLAIMER: if you do this in real life (which I don't recommend), you assume all responsibility for your losses.
[3] "Adam Smith: the Retcon?" hints towards the real contribution of the State to capitalism.

Friday, October 5, 2012

Hysteria in Spain.

One of the indignados called by the police to declare in relation to the Madrid riots last weekend was 57yo philosophy professor Rafael Tejero, from Granada.

The offence? Encircling and attempting to break into the Parliament. (See here, in Spanish).

The video below, in my opinion, is extraordinarily symbolic. I suppose that's why mainstream Western media will never show it.



Apparently, a group of some 10 policemen intent on pursuing and beating the indignados, oblivious to the presence of photographers and entirely unawares of their situation, split from the bulk of their comrades.

At about 0:18 finally perceiving themselves surrounded by the indignados and with their backs virtually against the wall, the policemen join their shields and start to retreat, around the corner.

At about 0:46, seemingly unable to retreat any further, the policemen are in an extremely vulnerable position. A surge by the mass of indignados, at this stage, could literally crush them against the wall. This episode could have ended in casualties and even fatalities among the cops. This is when Tejero (the bearded guy wearing blue jacket), initially by himself, and then with a number of other older men, intervene to shield the policemen.

I may be reading too much into this, and readers are free to disagree, but, as I said, I find that video powerfully symbolic.

For one, the undisciplined police behaviour, putting themselves in that position, reflects the ineptitude and arrogance of the Spanish ruling classes and their "authorities", for whom what matters is to subjugate their own population, by sheer force if needed.

The fact that Tejero, who offered the encircled officers an olive branch, is accused in a criminal case is meaningful, as well. It is the masters, not the oppressed, who are feeding violence and it is them who radicalize the masses. They can't stop discontent, so they try beating up people into submission and, supreme stupidity, remove the moderate elements.

But the cretinism of the Spanish elites reaches proportions of farce, when the case fabricated against Tejero and 7 others ends up dismissed in court: to encircle the Parliament is not an offence. (See here, in Spanish)

If I were a cop, I'd worry: perhaps, next time there would not be a Tejero to save my ass. And, just perhaps, I would not deserve to have my ass saved.

The video's last legend reads: "3. Finally, the people shield their aggressors, because, in the end, the people are better than them".

If among those aggressors one includes Mariano Rajoy, Angela Merkel, the Troika and all the bunch, and not just the cops, I could subscribe that.

Wednesday, October 3, 2012

Shame in Spain.

I didn't know this had happened. Today I learned of the scenes of savagery in Madrid last September, 27.





The video shows the brutal and criminal behaviour of Rajoy's uniformed thugs attacking the until then peaceful indignados, and turning the traditionally orderly manifestations into a battle.

It also shows Alberto Casillas, the coffee-shop owner, giving them sanctuary in his coffee shop, placing himself between the indignados and the police.

Not happy with the chaos they generated, once the indignados retreated, the police invade the train station, to arrest commuters indiscriminately.

Policías canallas, traidores, miserables y cobardes. Sois mierda.

Update:
10-10-2012. That's not the video I originally linked to. For some reason, the original video was removed by its YouTube poster (!?). Whatever.

Adam Smith: the Retcon?

"The Author of the Wealth of Nations",
by John Kay (1790) [A]
 

According to Econoblog101 (h/t Mike Norman Economics):
"This is a warning for those who have bought the Prometheus edition of the Wealth of Nations by Adam Smith. It is abridged, and it seems to have been edited to the effect that Adam Smith appears as a market liberal".
Apparently, one of the passages excluded was this (underlined and bold, within context, at the end):
"It is in the age of shepherds, in the second period of society, that the inequality of fortune first begins to take place, and introduces among men a degree of authority and subordination, which could not possibly exist before. It thereby introduces some degree of that civil government which is indispensably necessary for its own preservation; and it seems to do this naturally, and even independent of the consideration of that necessity. The consideration of that necessity comes, no doubt, afterwards, to contribute very much to maintain and secure that authority and subordination. The rich, in particular, are necessarily interested to support that order of things, which can alone secure them in the possession of their own advantages. Men of inferior wealth combine to defend those of superior wealth in the possession of their property, in order that men of superior wealth may combine to defend them in the possession of theirs. All the inferior shepherds and herdsmen feel, that the security of their own herds and flocks depends upon the security of those of the great shepherd or herdsman; that the maintenance of their lesser authority depends upon that of his greater authority; and that upon their subordination to him depends his power of keeping their inferiors in subordination to them. They constitute a sort of little nobility, who feel themselves interested to defend the property, and to support the authority, of their own little sovereign, in order that he may be able to defend their property, and to support their authority. Civil government, so far as it is instituted for the security of property, is, in reality, instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all." (The Wealth of Nations, Book V, chapter 1, part 2).

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If you read the whole paragraph, it explains why the rich are conservatives: "The rich, in particular, are necessarily interested to support that order of things, which can alone secure them in the possession of their own advantages".

It also explains why civil government (i.e. the State) exists and its true purpose: "Civil government so far as it is instituted for the security of property, is, in reality, instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all".

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I don't own that edition, didn't intend to buy it, and, after this, would be reluctant to recommend it. The book can be downloaded for free from many sources (for instance, Project Gutenberg), I have plenty time to read and Smith's book is important enough to justify the time invested.

As it turns out, while I don't buy all of Smith's arguments, Wealth of Nations is worth the effort. He had relevant things to say, and, unlike many of his successors, he said them with honesty.

Perhaps this explains Smith's apparent lack of popularity among today's free-marketeers.

Image Credits:
[A] "The Author of the Wealth of Nations", by John Kay (1790). Wikipedia.

Monday, October 1, 2012

Hunger in Spain.

As our betters only now start to speak their minds freely, Steven Pearlstein (The Washington Post columnist) wrote for them "A manifesto for the entitled" (h/t Mike Norman Economics)

Not bad for a first attempt, but he forgot some things: "I am entitled to immunity from prosecution for breaking the law and regulations, for defrauding other investors and the public and for bribing the regulators".

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No prize for those who guess that local free-marketeers will inevitably object that perhaps (perhaps!) that describes the US rich. "In Australia things are different."

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Sure they are. In Spain, too, things are different. While the Spanish people need to bin-dive (a new sport where you "dive" head-first into rubbish bins left outside supermarkets to retrieve whatever you find edible), the son-in-law of HM Juan Carlos I, Iñaki Urdangarín is being tried on charges of "defrauding the exchequer, falsifying documents, misappropriation of public funds and prevarication".

His father-in-law himself was in the news as well, last April. His Majesty, president of the Spanish branch of the World Wide Fund for Nature, broke his hip while on a hunting trip in Botswana:
"Shoots with Rann Safaris cost upwards of $8,700 (£5,500) a week, with an elephant costing a further $15,000 to kill. A day out with professional hunter Jeff Rann, pictured with the king, costs a further $2,000." (See here)
So, when our esteemed right-whingers start whingeing about the Spaniards being corrupt, lazy and used to living beyond their means, I am sure they will be talking about cases like these.


Liberal Economists vs K. Marx.

Or Serfs, Workers and Economists.

I should have posted today the third instalment of my series "Who Creates Wealth?" But considering that "Show me the Money!" already deals with this matter, I decided to give this a rest, for this week.

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Some days ago I found this example of exploitation by Argentine professor Orlando Astarita (here, in Spanish).

I could have simply linked to Google Translate; but the translation is still crappy. It seemed better to offer here my own version of Astarita's example. Any screw up is entirely mine.

Here we will play a kind of a game: you are the judge in the Liberal Economists vs Karl Marx trial. First I'll present the facts, which are pretty much well-known. Then you'll hear the arguments as the two parties would have presented them. Then you'll pronounce a verdict.

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Perfect Feudal Society

Imagine a feudal lord; he owns some land (manor) and divides it up in two equal plots. He keeps one for himself (demesne); the other one is subdivided into 20 smaller subplots, each assigned to a serf:

How the surface and production are apportioned.

The serfs and feudal lord have "mutual" obligations involving lots of things. Here we'll focus on the economic obligations. As the serfs live in the feudal lord's manor, they must pay him a tribute: they all work 3 days a week on his plot, for his benefit; each serf then works 3 days on his individual subplot, for his individual benefit. The seventh day, they rest.

Come harvest time, the serfs harvest their lord's crop for him. Say, 20 units of wheat. As each serf worked his own subplot and each subplot is 1/20 the size of the lord's plot, they each collect 1 unit of wheat. The entire harvest was 40 units of wheat (the lord's 20 + the serfs' 20).

The same figure above, considering now wheat units instead of land surface, describes how the agricultural production is distributed.

Each serf must subsist on 1 unit of wheat until next harvest, so let's assume it's indeed enough for a serf (and his family) to subsist on that.

The lord, of course, won't consume 20 units of wheat. He takes 7 for himself and his family, assigns 7.5 to his 5 soldiers (1.5 each) whose job it is to keep the serfs in their place; and 1.5 units go to the priest, whose job it is to teach the serfs that feudal society is God's will: there is no alternative.

This leaves the lord with 4 units, which he uses any way he likes. Say, he trades it for a suite of armour or for luxury items:
Lord's half of the harvest
in wheat units.


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We can describe the situation this way: the lord "leases" his land to the serfs; the serfs pay their "lease" to the lord, in work. Payments flow from serfs to lord; not from lord to serfs.

19th century liberal economists saw this and considered the lord's income unearned. Those economists also saw that serfs were coerced into the arrangement, and considered the situation unfair.


Wage Labour and Capitalism

Time passed, the lord of the manor became a capitalist. He evicted his serfs and hired 20 workers (farmhands): former serfs, expelled from other manors, who lost their livelihoods. This in British history was called the enclosure movement.

The hired farmhands work the whole property for the capitalist, for a wage.

Come harvest time, the farmhands harvest the crop, which the capitalist takes to the market and sells for, say, 40 gold coins (GC). The capitalist spends 20GC in wages: 1 GC to each farmhand. With her GC, each farmhand buys now 1/40 of the harvest, which we'll again assume must be enough to subsist until the next pay day.

The capitalist's operating profit, before tax, is 20GC. He pays 9GC as tax: 7.5GC to fund the 5-man strong police force (1.5GC each cop) and 1.5GC for an economist, whose job it is to teach the workers that society would unravel if it weren't for the capitalist: there is no alternative.

This leaves the capitalist with 11 GC: he keeps 7 for his livelihood, plus a net profit of 4GC, which he can spend any way he sees fit.

Capitalist Operating Profit
in Gold Coins.

The table above sums up the situation. Contrast it with the previous table, to find any real difference.

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Today's liberal economists find capitalism a vast improvement over feudalism. Unlike their 19th century forefathers who condemned feudal lords, they say the capitalists' income is not unearned: their thrift puts the whole machinery in motion. Further, they'd say pay flows from the capitalist to the workers in proportion to their contribution.

Marx would say it was the serfs' original eviction (enclosure) that kick-started the machine in Britain and he would admit that money flows from capitalist to workers, the same money that, after spent, flows back from the workers to the capitalist. And the capitalist, just like the feudal lord of the manor, still keeps a portion of the excess output and needs to do nothing for it: at least 4GC after tax (assuming the capitalist actually did some very handsomely rewarded work worth 7GC). This is exploitation.

Unlike feudalism, liberal economists would say, capitalism isn't coercive: workers are free to look for another job. Liberal economists, they'd say, stand for freedom.

Marx would say: lacking effective means of survival, which belong to the capitalists, workers are free in name only; free to chose between working, at one hand, or starving or being evicted from their homes, at the other. That's why both feudal lords and capitalists keep men in arms. In reality, he'd say, our farmhands aren't much freer than the serfs.

Liberal economists would close their case by claiming they played a major role in all this improvement. Marx is a pathetic, "nutty" fool, they'd say, who didn't understand things. For some reason they don't explain, Marx chose a life of hardship (instead of the upper-middle class life he could have led) with the sole purpose of lying to the impoverished workers.

Marx would say there wasn't much improvement in the essentials of the situation: you are still at the mercy of your boss. But even in a more pragmatic level (unemployment, poverty) things don't look too awesome right now, eh? And he called these economists "vulgar", or charlatans (if you prefer), whose extremely well remunerated job it is to lie to keep things from changing.

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Both cases are closed. It's time to issue a verdict.